In recent years, British Columbia’s housing market has become one of the most expensive in Canada. Despite the government's efforts to make housing more affordable, the reality remains a complex issue. Many wonder: Have the policies implemented by the provincial and municipal governments improved housing affordability, or have they unintentionally added to the problem?
Let's break down some of the key factors and explore why government policies may not be having the desired effect.
1. Lack of Consultation with Experts and Common Sense in Housing Policy
One of the main issues with the current approach is that government policies often come from a top-down perspective. Rather than consulting with urban planning experts, developers, and local stakeholders, the government has pushed through policies without fully understanding the complex dynamics of housing in BC. By not consulting those who truly understand the needs and challenges of housing development, policies have often been misguided or impractical.
2. The “One-Size-Fits-All” Model Doesn’t Work
The government’s approach to housing has been one-size-fits-all, if policies that work in one city or neighborhood will work everywhere. This doesn't consider the unique challenges faced by different communities. For example, what works in Surrey might not be feasible in Vancouver, where the market conditions, infrastructure, and demands are vastly different. A more tailored, localized approach would likely yield better results.
3. The Broken Bureaucracy and the Costs of Delays
Another significant barrier to progress is the inefficiency of the bureaucracy behind housing approvals. Multiple layers of policies, permits, and approvals are often tangled in red tape, leading to delays and additional costs. For example there are over 44,000 units approved in Surrey and 25,000 units in Burnaby, but many are on hold due to these bureaucratic hurdles. Developers face lengthy delays, and with construction costs rising, these projects become more expensive and less viable.
4. The Cost of Delivery and Vancouver’s Expensive Real Estate
Building a new project in Vancouver is not just about the cost of land and materials—there is also the high cost of delivery. Developers are burdened with various fees like Community Amenity Contributions (CAC) and Development Cost Charges (DCC), which drive up the price of construction. Currently, developers are paying up to $9.3 million in fees to the city for a project. This, combined with the delays caused by broken bureaucracy, has made Vancouver’s housing market incredibly expensive, contributing to the overall cost of housing.
5. Uncertainty in the Market and No Silver Bullet
The real estate market in BC is experiencing significant uncertainty. With interest rates fluctuating and concerns about market stability, there is no silver bullet to solve the affordability crisis. Developers, investors, and buyers alike are hesitant to make major moves, unsure of what the future holds. This uncertainty only deepens the challenges faced by all parties involved.
6. The Need for a Drastic Reset
Absorption rates—the rate at which newly constructed housing units are rented or sold—are currently very low. This means there is a significant oversupply of housing relative to demand, leading to market stagnation. A drastic reset in both policy and market conditions is needed to bring supply and demand into better alignment. Otherwise, we risk heading toward a “race to the bottom,” where prices drop too low for developers to build and sustain new housing projects.
7. The Impact of Delays on Housing Supply
While municipalities like Surrey and Burnaby have approved tens of thousands of new units, many of these projects are not moving forward due to delays in approvals, escalating construction costs, and excessive fees. Vancouver, for example, has only 1,000 new units approved, with few moving ahead due to the same bureaucratic challenges. This delay in the development process exacerbates the housing supply crisis, leaving many prospective homeowners and renters in limbo.
8. The Shift of Investment: Downtown Vancouver vs. Surrey
Another concerning trend is that investors are shifting their focus away from downtown Vancouver and moving towards more affordable areas like Surrey. Rents in downtown Vancouver have soared to $6 per square foot, while in Surrey, rents are considerably lower at $4 per square foot. This price difference is a key driver of investor decisions, contributing to the scarcity of new development in Vancouver.
9. The Vacancy Tax Conundrum
Ironically, if new units in Vancouver remain unsold for six months, developers are required to pay a 3% vacancy tax on the market value of the property. This tax penalizes developers for having unsold inventory, further complicating the situation. Instead of incentivizing new development, this tax discourages it, as developers may find it more profitable to hold off on construction rather than face hefty penalties.
10. Encouraging Density: The Debate Over Vacancy Taxes and Home Sharing
A solution to the housing crisis might be to encourage more density through measures like a vacancy tax on empty bedrooms or incentives for home-sharing. These strategies could help maximize the use of existing housing stock, easing some of the pressure on the rental market. However, such measures require careful planning and execution to avoid unintended consequences.
11. Developers Are better off to buy GICs Instead of Building
Given the uncertainty in the market and the challenges of delivering new projects, many developers are now finding it more profitable to invest their money in guaranteed returns, such as Guaranteed Investment Certificates (GICs), rather than taking the risks associated with new construction. With little return on investment (ROI) expected soon, the development community is hesitant to invest in new housing projects.
12. Investors and First-Time Homebuyers Are Not Coming
Investors are staying away from the market, and first-time homebuyers are struggling to scrape together a deposit. For empty nesters, waiting 3 to 4 years for new units to be built isn’t an option. With high construction costs, long timelines, and limited housing options, both investors and buyers are looking elsewhere for opportunities.
13. Rising Tides Raise All Boats: The Effect on Real Estate Prices
It’s not just the cost of construction that’s driving up housing prices—it's the broader economic factors as well. Rising costs for materials, labor, and financing have increased the price of real estate, making it unaffordable for many in the market. A rising tide has raised all boats, meaning that even those at the lower end of the market are being affected by these broad economic forces.
14. The Decline of Rental Purpose-Built Projects
As rents begin to fall, rental purpose-built projects become less financially viable. Developers are no longer incentivized to build rental units when market conditions make it difficult to secure a return. This shift further exacerbates the shortage of rental housing in BC, making it even harder for renters to find affordable places to live.
15. A Cultural Shift in Living Arrangements
The traditional idea of homeownership is also undergoing a shift. Stats from 2022, the average number of people per home was 2.5, reflecting a cultural shift toward longer stays at home, especially among young adults. This change means that more people are competing for limited rental and ownership options, putting further pressure on the housing market.
16. Clarity on the Horizon?
Many in the real estate market are hoping that by 2026, we will have more clarity on the market’s direction. With changes to government policies and economic conditions, the situation could stabilize, but for now, uncertainty reigns.
17. The Broadway Corridor: A Focus on Rental Purpose-Built Projects
A key area of focus is the Broadway Corridor in Vancouver, where 80% of new developments are rental purpose-built projects. While this is a step in the right direction, it remains to be seen whether these projects can meet the demand and contribute to affordability in the long run.
A Complex Challenge; The truth is, government policies have not significantly lowered the cost of housing in BC. While well-intentioned, the top-down, one-size-fits-all approach has failed to address the underlying issues of supply, demand, and affordability. Until there is a concerted effort to streamline the approval process, reduce unnecessary fees, and incentivize development, the housing crisis will continue to worsen. The key to solving BC's housing problem lies in pragmatic, expert-driven solutions that cater to the unique needs of each community, rather than blanket policies that don't account for local realities.
